UMass deal blows hole in city budget

This is the time of year when city officials usually are well into putting together the municipal budget for the following fiscal year, which begins July 1.

In a little more than two months or so, City Manager Michael V. O’Brien will submit his fiscal 2014 budget proposal to the City Council.

But the city’s budget planning took a big-time hit over the weekend when three newly created nonprofit subsidiaries of the University of Massachusetts Medical School paid $40.2 million Friday to acquire land and buildings at the Massachusetts Biotechnology Research Park off Plantation Street.

What do those acquisitions have to do with next fiscal year’s municipal budget?

A lot — to the tune of at least $1.52 million.

Because of the tax-exempt status of the UMass Medical School and its nonprofit subsidiaries, they will not be required under state law to pay property taxes on the biotech park properties.

In other words, they will be off the tax rolls as of July 1. Property taxes have been paid on the properties through June 30.

The properties that UMass has acquired have a total assessed valuation of $40.2 million, meaning that they generated about $1.52 million in property taxes for the city this fiscal year.

But if those properties go off the tax rolls July 1, city officials will have to find ways to generate another $1.52 million in property taxes to offset the loss of that revenue, or they will have to reduce municipal spending by that amount.

In fact, some city officials said, the figure could be closer to $2 million if personal property taxes are also factored in.

At a time when the city is struggling to maintain the services and programs it now provides in its roughly $545 million municipal budget, the loss of $1.5 million to $2 million in tax revenue would likely result in noteworthy cutbacks.

A $1.52 million loss in taxes would equate to roughly .64 percent of the city’s $235 million tax levy for this fiscal year.

“There’s no doubt this could have a major negative impact on our budget,” said Mayor Joseph M. Petty. “The city manager was recently talking about adding a new police class next fiscal year, among other things, but now you have to wonder what’s going to happen to all that if we receive no taxes from these properties.

“People are concerned,” the mayor added. “I’ve already received telephone calls and text messages from several people who are wondering what effect this is going to have on them.”

City Manager Michael V. O’Brien echoed that sentiment, pointing out that the biotech park is one of the city’s largest taxpayers.

He said whatever is lost from the tax rolls at the biotech park would have to be absorbed by all other taxpayers; otherwise municipal spending would have to be reduced.

“The taxpayers paid to develop the biotech park and they would have to pay again in higher (property) taxes when (UMass) pulls these properties off the tax rolls,” Mr. O’Brien said.

Given that, the city manager is expected to press UMass officials to keep the properties on the tax rolls or make payments to the city that are equal to the amount of taxes that would be lost.

Mark Shelton, a spokesman for the medical school, said UMass officials intend to discuss the transaction in more detail with the city, though he would not elaborate on whether the issue of taxes or payments in lieu of taxes would be part of those discussions.

Meanwhile, there is great angst at City Hall in the way the UMass property acquisitions unfolded.

More than a few city officials think UMass blindsided the city by not engaging in any dialogue with them before acquiring the properties.

“You would think that a move of this magnitude would have warranted some kind of public or private discussions (with city officials) beforehand,” Mr. Petty said. But Mr. Shelton said UMass had agreed with the seller to negotiate confidentially. As a result, it could not discuss it with anyone until after the deal was completed, he said.

City officials said they were aware that the properties were up for sale by the previous owner of the properties, Alexandria Real Estate Equities.

But the feeling at City Hall was the properties would be marketed to for-profit entities.

Few if any at City Hall were aware of any plans UMass Medical School had to continue to grow its life sciences research and development enterprise by acquiring properties at the nearby biotech park.

“Securing the future of the biotech park as a venue for life sciences companies to continue to flourish and develop is important to UMass Medical School, as well as the city and the region,” Mr. Shelton said.

When city officials did get wind of UMass’ interest in the properties, sources said, attempts were made to contact medical school officials about what was going on, but no information was forthcoming.

“It was under wraps,” one city official said privately. “Calls were made and all they kept telling us was that they couldn’t talk because of confidentiality.”

Mr. O’Brien said it was not until Thursday night when he finally got to speak to Dr. Michael Collins, the medical school chancellor, for the first time about the property acquisitions.

But by then it was virtually too late to do anything about stopping the deals, as the property transactions took place the next day.

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